Real GDP and Nominal GDP

Correct answer: C. Both prices and output quantity

Explanation: Nominal GDP is calculated by valuing current production at current prices. Thus it changes when the quantity of output changes, when prices change, or when both change together. Option C is correct. Real GDP uses constant base-year prices to focus mainly on quantity changes, while population and exports alone cannot define the complete effect included in nominal GDP.

Correct answer: A. In quantity of output

Explanation: Real GDP uses constant base-year prices, so the effect of changing prices is largely removed from the measure. When the price basis is fixed, changes in real GDP mainly represent changes in the quantity or volume of goods and services produced. Therefore option A is correct. Inflation is more closely reflected in nominal GDP or a price index, not primarily in real GDP.

Correct answer: B. It will rise

Explanation: Nominal GDP values output at current prices. If the quantity of goods and services stays unchanged but their prices rise, the monetary value assigned to that same output increases. Therefore nominal GDP will rise, so option B is correct. This does not imply that physical production has increased; it reflects the price effect. A fall, no change, or zero would contradict the stated price increase.

Correct answer: C. It will remain unchanged

Explanation: Real GDP is calculated using constant base-year prices rather than the current prices that have risen. Since the physical quantity of output has not changed, valuing it at the unchanged base-year prices produces the same real GDP as before. Hence option C is correct. Nominal GDP would rise because it uses current prices, but real GDP is designed to exclude this pure price effect.

Correct answer: B. Nominal GDP

Explanation: GDP valued using the prices prevailing in the current year is called nominal GDP. It reflects both changes in the quantity of output and changes in prices, so it is also known as GDP at current prices. Option B is correct. Real GDP instead uses constant or base-year prices, green GDP adjusts for environmental costs, and net domestic product subtracts depreciation.

Correct answer: B. Real GDP

Explanation: GDP measured at constant prices, usually the prices of a selected base year, is called real GDP. Because the price level is held fixed, real GDP is useful for identifying changes in actual output or production volume over time. Therefore, option B is correct. Nominal GDP uses current prices, personal income is a household-income measure, and GNP includes residents’ income from abroad.

Correct answer: B. Real GDP

Explanation: Real GDP measures the value of goods and services using constant base-year prices. By removing the effect of changing prices, it shows whether the actual quantity of output has increased. Nominal GDP may rise merely because prices have increased, while a price index and population alone do not measure total production. Therefore, real GDP is the better measure of economic growth.

Correct answer: A. Both will rise

Explanation: GDP equals the quantity of final output multiplied by its relevant price. When prices remain constant and output quantity increases, nominal GDP rises because current-price valuation covers more output. Real GDP also rises because it uses fixed base-year prices and the quantity has increased. Hence both measures rise; only nominal GDP would be isolated if quantity stayed fixed and prices changed.

Correct answer: B. It will fall

Explanation: Nominal GDP is calculated using current prices: nominal GDP equals current quantity multiplied by current price. If the quantity of output remains unchanged but current prices fall, the value of that output falls, so nominal GDP decreases. Real GDP would remain unchanged under constant quantity because it is calculated using base-year prices. Therefore, option B is correct.

Correct answer: C. It will remain unchanged

Explanation: Real GDP values current output at fixed base-year prices, so it is designed to remove the effect of current price changes. In this case, the output quantity remains unchanged; therefore the same quantity multiplied by the same base-year prices gives the same real GDP. Falling current prices reduce nominal GDP, not real GDP. Thus, option C is correct.

Correct answer: A. ₹2,500

Explanation: The governing concept is that real GDP values current-year output at base-year prices, so the effect of changing prices is removed. Calculation: real GDP = current-year quantity × base-year price = 100 × ₹25 = ₹2,500. Therefore, option A is correct. ₹3,000 would be nominal GDP because it uses the current price of ₹30; the other values do not follow the stated formula.

Correct answer: A. About a 5 percent rise in output quantity

Explanation: Real GDP measures the value of production using constant base-year prices. Therefore, its growth primarily indicates that the quantity of final goods and services produced has increased, after excluding the effect of price changes. Hence, option A is correct. Option B describes inflation, while population and taxes are not direct meanings of real GDP growth.

Correct answer: B. No

Explanation: Nominal GDP is calculated using current prices, so its growth reflects both changes in output quantity and changes in prices. Consequently, a 10% rise in nominal GDP does not necessarily imply a 10% rise in real output; inflation or deflation may account for part of the change. Therefore, option B is correct. The other choices incorrectly treat nominal growth as a direct measure of physical production.

Correct answer: B. Nominal GDP

Explanation: During inflation, the current price level is generally above the base-year price level. Nominal GDP uses current prices, whereas real GDP uses fixed base-year prices. If output is positive, this usually makes nominal GDP higher than real GDP, and the GDP deflator exceeds 100. Thus, option B is correct; the word generally allows for the stated comparison without claiming that every situation has identical output conditions.

Correct answer: B. Real GDP is higher than nominal GDP

Explanation: When the current price level falls below the base-year price level, the GDP deflator becomes less than 100. Nominal GDP is then calculated using relatively lower current prices, while real GDP uses base-year prices. For a positive level of output, real GDP can therefore be higher than nominal GDP. Hence, option B is correct; the other choices ignore the different price bases or make unsupported absolute claims.

Correct answer: B. It will double

Explanation: Real GDP equals the quantity of final output multiplied by fixed base-year prices. When prices remain unchanged and the output quantity doubles, every component of the real-GDP calculation doubles as well. Thus, real GDP will double, making option B correct. It would remain unchanged only if the measured quantity did not change; a fall or zero value is inconsistent with the stated increase in production.

Correct answer: B. It will double

Explanation: Nominal GDP is measured as current prices multiplied by the current quantity of final output. With output quantity unchanged, doubling the current prices doubles the value recorded as nominal GDP. Therefore, option B is correct. This change does not by itself show an increase in real production, because real GDP uses base-year prices and is unaffected by a pure price change when quantity stays constant.

Correct answer: C. ₹9,000 crore

Explanation: The governing relationship is Nominal GDP = Real GDP × GDP deflator ÷ 100. Substituting the given values gives ₹6,000 × 150 ÷ 100 = ₹9,000 crore. Therefore, option C is correct. Option A reverses the price adjustment, option B ignores the deflator, and option D multiplies without applying the index-base conversion.

Correct answer: C. ₹5,000 crore

Explanation: The relevant formula is Real GDP = Nominal GDP × 100 ÷ GDP deflator. Thus, Real GDP = ₹4,500 × 100 ÷ 90 = ₹5,000 crore. Option C is correct. Option A results from an incorrect division, option B fails to adjust for the deflator, and option D applies the index in the wrong direction.

Correct answer: A. Output rises but prices fall sufficiently

Explanation: Real GDP measures changes in quantities using constant prices, whereas nominal GDP reflects both quantities and current prices. If physical output increases but the price level falls by enough to outweigh that increase, real GDP rises while nominal GDP declines. Therefore, option A is correct; the other choices do not produce this combination.

Correct answer: A. Because the price effect is removed

Explanation: Real GDP values output at constant prices, so changes caused merely by inflation or deflation are removed. This makes comparisons across years more meaningful because they primarily show changes in the volume of production. Therefore, option A is correct. Real GDP does not assume constant population, zero taxes, or unchanged exports, so options B, C, and D are unrelated.

Correct answer: A. Because it also includes the effect of price rise

Explanation: Nominal GDP is measured using current prices, so its growth reflects both changes in physical output and changes in prices. During inflation, nominal GDP may rise even when the quantity of goods and services has not increased. Therefore, option A is correct. Nominal GDP does include output, does not measure only imports, and is not always negative, ruling out B, C, and D.

Correct answer: A. The constant prices used

Explanation: Real GDP is calculated by valuing current quantities at prices from a selected base year. When the base year changes, the reference or constant-price structure used for valuation changes, and the reported real GDP series may be revised. Thus option A is correct. The current-year quantities, national boundary, and basic production definition do not automatically change merely because the base year changes.

Correct answer: A. Rise in the price level

Explanation: Real GDP holds prices constant and therefore remains unchanged when the physical volume of production is unchanged. Nominal GDP uses current prices, so it can rise because the price level has increased, even without additional real output. Therefore, option A is correct. A rise in output would normally raise real GDP, while population and unchanged exports do not directly explain this result.

Correct answer: A. Prices must have fallen

Explanation: Nominal GDP equals the value of output at current prices, while real GDP captures the quantity of output at constant prices. If real GDP rises but nominal GDP remains unchanged, the higher quantity must be offset by a sufficiently lower price level. Consequently, option A is correct. Rising or unchanged prices would generally make nominal GDP increase when real output increases.